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Speaker 2: This is a join.
Speaker 3: Nick Kolis joins us right now, thrilled that it could
Speaker 3: be with us. First of all, let me tell you
Speaker 3: about the jobs report coming up on Friday. It's at
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Speaker 3: to cover up something first. I mean people go to
Speaker 3: way to school and you know, they, you know, like
Speaker 3: they they're like it's good when there's other schools around.
Speaker 3: So if you go to Haverford like you did, and
Speaker 3: you're studying absolutely bizarre majors like Nick Coolis, did you
Speaker 3: end up You're walking the two miles Turnbridge Road to
Speaker 3: College Avenue to Haverford Road. You're going north, deep north
Speaker 3: to Brynmar to studies. Did you do most of you
Speaker 3: studying at Brynmar? Yes, that was where I majored Seven
Speaker 3: Sisters School.
Speaker 4: They had the best archaeology undergrad program in the country
Speaker 4: when I was applying the schools, and so I studied
Speaker 4: with the very best people in the field for four years.
Speaker 5: It was awesome women there, it is there.
Speaker 4: Yes, Haverford had gone co ed three years before I
Speaker 4: got there. I saw the last all male class graduates,
Speaker 4: and then Brynmar was was single sex obviously, and so
Speaker 4: it was an interesting dynamic.
Speaker 3: I'll see what you did there, Okay, I mean it's
Speaker 3: a it's a plethora of people. You're Jody Lurie. You
Speaker 3: know Britmar Grey shows off sometimes without the horse.
Speaker 2: Yep. But this is a Philadelphia thing.
Speaker 3: Do you have any perspective on the Pennsylvania vote coming up?
Speaker 3: The axis of Philadelphia out to Pittsburgh havn't been a
Speaker 3: mainline academic.
Speaker 4: Mainline is sort of like Manhattan. It is its own
Speaker 4: little isolated world.
Speaker 3: So no, do you think it's definitive within the election.
Speaker 3: I don't hear a lot of people talking about it.
Speaker 2: No, no, it's okay. Let's go to your research on
Speaker 2: Nick Coolas.
Speaker 3: Of course, we protect the copyright of all I guess
Speaker 3: get it from Nick Colis at Data Trek Research. You
Speaker 3: have a stunning industry sector chart that in red shows
Speaker 3: you the max overweight of technology. What does Nick Colis
Speaker 3: do with the reality of a persistent tech overweight.
Speaker 4: Yes, it is dramatic, and it's obviously we're talking about
Speaker 4: the SP five hundred versus anything else, any other index
Speaker 4: anywhere in the world, MSCI Europe, Japan, Emerging Markets, everything.
Speaker 4: Tech is a heavyweight in the US more than anyplace else.
Speaker 4: And the bottom line is you have to live with it.
Speaker 4: And there's a reason why these companies have gotten so big.
Speaker 4: They are disruptive innovators at scale, and they own most
Speaker 4: of the Internet, and it's really hard to back away
Speaker 4: from that. Here in the US we talk about it
Speaker 4: a lot as a negative. When I visit clients in Europe,
Speaker 4: everybody resolutely thinks it's a positive, and they think, thank
Speaker 4: God for US equities, because if there weren't for the
Speaker 4: s people five hundred, I'd be stuck owning MSCI Europe
Speaker 4: earning five to eight percent instead of owning the US,
Speaker 4: which is compounding at thirteen. So we think of it
Speaker 4: as a problem here, nobody else sins it's a problem.
Speaker 5: And it's funny because my personal opinion is one of
Speaker 5: the reasons we have such a robust tech business is
Speaker 5: because of the government. The government has historically taken a
Speaker 5: light touch to regulating technology, which I in my opinion,
Speaker 5: has allowed silicon value to become Silicon Valley, whereas in Europe,
Speaker 5: I've got SAP, I've got ASML, and I think that's
Speaker 5: kind of it. Okay, So we'll see how that plays
Speaker 5: out going for You've got something in your note which
Speaker 5: Tom reference offshore gambling odds on the presidential elections.
Speaker 2: Are they important?
Speaker 5: Are they impacting the market?
Speaker 2: It's funny.
Speaker 4: I've followed prediction markets for years back to predict it,
Speaker 4: some of the Iowa original Iowa analysis, and I've never
Speaker 4: seen as much interest in this as right now in
Speaker 4: this election. The prediction markets, the bank markets are really
Speaker 4: blown up, and I wonder how isolated or insulated they
Speaker 4: are from influence from people who know that they are
Speaker 4: now affecting capital markets.
Speaker 3: Well, there's people putting gazillions of dollar trades into one
Speaker 3: of the predicted markets, Nick Coleas, is it you?
Speaker 4: Sadly it is not me. Polymarket is the big market
Speaker 4: for that. And I think there's been reports of a
Speaker 4: whale buying between thirty and forty million dollars or Trump trades.
Speaker 4: And evidently he's a sophisticated French investor, French trader. And
Speaker 4: I've wondered, and I've written this, I wonder how much
Speaker 4: perhaps people are influencing the Trump contract because they know
Speaker 4: it spills over and to pay so and bank stock
Speaker 4: and the Yell curve and the Lolong end of the
Speaker 4: Yuell curve. I wonder how accurate prediction markets will be
Speaker 4: now that they're hooked up to the rest of the
Speaker 4: financial system.
Speaker 2: Interesting.
Speaker 5: So, I mean, as an investor, how do you think
Speaker 5: about this US election? It feels kind of binary a
Speaker 5: little bit. There's I mean, depending on who wins the election,
Speaker 5: there's different policies there. And is that factoring into your
Speaker 5: investment outlook, the.
Speaker 4: Way we described as the clients was there's a very
Speaker 4: clear set of Trump trades because we saw what happened
Speaker 4: in the market after he won in twenty sixteen. Yell
Speaker 4: curve backed up, financials ripped energy ripped. It's a very
Speaker 4: clear trade, and it's kind of happening right now. There's
Speaker 4: not as clear a Harris or Biden trade because when
Speaker 4: Biden was elected in twenty twenty, we're in the middle
Speaker 4: of the pandemic. The vaccines were rolling out in between
Speaker 4: election day and the rest of the year. There's no
Speaker 4: clear Harris trade, right but there is a clear Trump trade,
Speaker 4: which I think has forced people to say, Okay, at
Speaker 4: least we know what to do if he wins. And
Speaker 4: that's why they've been working at Trump trade because there's
Speaker 4: some clarity there versus no clarity of Harris.
Speaker 2: What are you doing?
Speaker 3: What is the Nick Cholis action to invest new money
Speaker 3: in the stock market? Looking out six months, looking out
Speaker 3: a year.
Speaker 2: Two years.
Speaker 4: Yeah, the way we're looking at it is, let's sort
Speaker 4: of get past the election. So we're talking about, like
Speaker 4: I said, a one to two year timeframe, and there
Speaker 4: the playbook is pretty straightforward.
Speaker 2: For US.
Speaker 4: It's long US equities, it's small caps for a trade,
Speaker 4: it's financials, it's industrials. But really be very careful with Europe, Japan,
Speaker 4: and em because aside from China, there's not a lot
Speaker 4: good going on there.
Speaker 2: Nick you.
Speaker 3: You and I have talked about this before. They're the
Speaker 3: brats out in Silicon Valley. Everything's great. They got ping pong.
Speaker 2: You know what are the football They.
Speaker 3: Got foosball machines in the lobby. Data Truk doesn't have that, folks.
Speaker 3: And all of a sudden they've grown up. Thank you,
Speaker 3: mister Zuckerberg. And we saw yesterday with Google margins coming
Speaker 3: in count excuse me, folks, and gasp went off. The
Speaker 3: plague headcount coming in as well. There's a new sobriety
Speaker 3: in tech. Can you invest in that new sobriety?
Speaker 4: I think it is certainly helpful and improved return on capital,
Speaker 4: It improves margins, It shows that there's some grown ups
Speaker 4: in the room with some discipline, and that's great. But
Speaker 4: ultimately you're buying tech for jen Ai and for the
Speaker 4: next level of autonomous driving and a whole bunch of
Speaker 4: other things. The only thing the market consistently gets wrong
Speaker 4: in any sector is in technology because it's so hard
Speaker 4: to predict the future of technology. So if you look
Speaker 4: at ten year returns, tech has it over everything by
Speaker 4: a wide margin because the market doesn't know what's coming next,
Speaker 4: and every other sector it's a lot harder.
Speaker 5: I've got a FED that's cutting rates. They cut initially
Speaker 5: by fifty basis points. Yet my two year treasury in
Speaker 5: four point one four percent. What happened there? I mean,
Speaker 5: I'm an equity guy, so I have no idea what's
Speaker 5: going on?
Speaker 4: Yeah, the issue is economic growth picked up and it
Speaker 4: still remains strong. We see what with the ADP numbers.
Speaker 4: We see it with the GDP numbers, even though they're
Speaker 4: a little bit light versus expectations are still very robust.
Speaker 3: Let's review that three percent two point nine percent was
Speaker 3: a survey. It comes in two point eight percent, and
Speaker 3: I'm looking at Paul. It's like a big red light
Speaker 3: going on personal consumption three point seven percent most in
Speaker 3: the old days, that's a boom and Coonamy Right, Nick.
Speaker 4: Yes, I mean this is one of those what else
Speaker 4: do you need to know? Kind of reports. You look
Speaker 4: at this and say, fine, I know everything I need
Speaker 4: to know for the next ninety days.
Speaker 5: So what are you doing. I guess in the near
Speaker 5: for the next week, or you're telling clients just de
Speaker 5: risk to the extent you can de risk until we
Speaker 5: figure out what's going to happen in a week.
Speaker 4: We try very hard not to play the game that
Speaker 4: way because some of our clients are traders. My background
Speaker 4: is some degree in trading, so we are telling them, okay,
Speaker 4: this is why yields it backed up, and the financials
Speaker 4: have worked, that energy has worked. So if you're along
Speaker 4: those trades lightened up because who knows. But aside from that,
Speaker 4: we try very hard to say, look, ultimately, like the
Speaker 4: Larry Summers quote is right, Europe's and museum Japan's are
Speaker 4: nursing home, China is a prison, and the US he
Speaker 4: didn't say this, but this is my addendum. The US
Speaker 4: is a business. Larry Summers, Europe, muse, Japan's a nursing home,
Speaker 4: China's a prison. And my addendum to it is America
Speaker 4: is a business. And the reason that American markets work
Speaker 4: better than others is simply because they overwhelm the political side.
Speaker 3: Twenty seconds near Eastern archaeology, can there be a new Syria?
Speaker 6: Ooh?
Speaker 4: I think what archaeologies haven't win anything else is that
Speaker 4: empires rise and fall, but they're very unpredictable, and you
Speaker 4: can have empires that go two thousand years, like Egypt.
Speaker 4: So it's fascile to say, Okay, the Rooman empire only
Speaker 4: lasts a couple hundred years. There are examples of things
Speaker 4: lasting a really long time.
Speaker 3: Nick Cools, including Bloomberg Surveillance. Nick Cools, thank you so much.
Speaker 2: Data tech research just really really important.
Speaker 3: We'll feature him in single Best Idea our podcasts out today.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 3: I'm looking at Google pre pandemic thirty one billion in
Speaker 3: free cash flow. We got a model here many if
Speaker 3: Singh's got a model of seventy six billion, it's like
Speaker 3: a double plus yea coming out of the pandemic. Are
Speaker 3: they hiding how successful they are? Is the bottom line?
Speaker 3: We're gonna see it with Microsoft today, Apple tomorrow. They
Speaker 3: really don't want Washington to know how big and how
Speaker 3: fast they're growing, do they?
Speaker 2: Yeah?
Speaker 7: And they know how to turn on the dials when
Speaker 7: it comes to top line or free cash flow. And
Speaker 7: that's what they showed last night is the.
Speaker 3: Merging build out versus employee headcout was an active.
Speaker 7: Gay, Yeah, I mean all the new In fact, twenty
Speaker 7: five percent of new code is written by AI. For
Speaker 7: a company of Google scale to say, twenty five percent
Speaker 7: of new code is written by AI. That just goes
Speaker 7: to show how far ahead they are when it comes
Speaker 7: to deploying these technologies, and then what it means for
Speaker 7: the head count going forward. I mean, these companies will
Speaker 7: not grow headcount at least in the next two three.
Speaker 3: So you know, we hear anecdotally. Paul and I read
Speaker 3: on the weekend. Paul's at the beach, He's got a
Speaker 3: vest bice're having the morning coffee and we're reading the
Speaker 3: tech and software engineers or having trouble getting jobs.
Speaker 2: Can you say it's because of AI?
Speaker 7: They will certainly be more efficient and there won't be
Speaker 7: as many jobs at the same time. I think what
Speaker 7: he called that was everyone is more productive when it
Speaker 7: comes to writing code as a result of this, And yes,
Speaker 7: that translates into some jobs changing because of you know,
Speaker 7: the dynamic that code can be completed by AI system.
Speaker 5: I think code can do like newscasts John Tucker's jobs AI.
Speaker 4: We tried that in the.
Speaker 2: Old building or some version of it, and it was
Speaker 2: just as a disaster.
Speaker 5: Man, we talked about Alphabet. It's still the search business.
Speaker 5: And I think I'm looking at the stock it's only
Speaker 5: up twenty percent year to date because I think some
Speaker 5: investors are concerned about the core search business and the
Speaker 5: threat from AI. What did you hear last night from
Speaker 5: the company about that issue?
Speaker 7: I mean for business. So for two hundred billion dollar
Speaker 7: run rate growing double digits, that just goes to show
Speaker 7: that that threat was just a narrative. It's really not
Speaker 7: translating into any AD dollars going away. And what they
Speaker 7: call that was the lengthening of engagement when it comes
Speaker 7: to search. Typically, with the traditional search, you would see
Speaker 7: the blue links, they'll show you an AD, you will
Speaker 7: go to the publisher website. Now people are engaging in
Speaker 7: a more complex way. That's what they said, that the
Speaker 7: time spent in searching, the complexity of queries is getting bigger,
Speaker 7: and that is what's helping their AD loads when it
Speaker 7: comes to you know, the overall at revenue.
Speaker 3: Man, if we don't care, the only reason you're here
Speaker 3: is Paul in my in John Tucker's entire future is
Speaker 3: based on this bet on YouTube. We said good morning,
Speaker 3: and we value everyone. Yeah, subscribing to Bloomberg podcasts on YouTube.
Speaker 3: Michael Nathans suggests YouTube swings to profit this year. Was
Speaker 3: there evidence there that John Tucker's making profit YouTube?
Speaker 7: Yes. In fact, along with the cloud acceleration from twenty
Speaker 7: nine to thirty five percent, this quarter, YouTube subscriptions grew
Speaker 7: twenty eight percent. Just think about it. It's a fifteen
Speaker 7: billion dollar plus run rate business. Just a subscriptions piece.
Speaker 7: I'm taking out the YouTube ads, which is another forty
Speaker 7: billion dollars. Subscriptions piece grew twenty eight percent. Now compare
Speaker 7: that to Netflix. I mean, it's growing midteens, fifteen percent
Speaker 7: higher run rate, but still that just goes to show
Speaker 7: how much traction they have with YouTube. So clearly that's working.
Speaker 4: All right.
Speaker 5: I was using Google Search last night. I'm trying to
Speaker 5: figure out something. What is AI overviews that's coming in?
Speaker 5: I don't know what that is? What is that?
Speaker 7: So basically what they've changed is the search page will
Speaker 7: have a summary of you know, whatever query you have.
Speaker 7: The prompt can be any length, and they show you
Speaker 7: an overview of all the blue line that they are
Speaker 7: showing you underneath that. So they have basically combined generative
Speaker 7: AI along with their traditional search and then that JENNYI
Speaker 7: overview is the generative AI.
Speaker 5: No way, John Tucker's using generative AI. I can just
Speaker 5: tell you that right now, what do you think?
Speaker 7: Maybe I am and I don't know exactly I would
Speaker 7: concur with that.
Speaker 3: Yeah, Microsoft today, what is I mean, it's off your.
Speaker 2: Remit right, you're not following Microsoft.
Speaker 7: I mean, if you're looking at cloud, you have to
Speaker 7: look at Microsoft.
Speaker 2: So what are you looking at here? At four fifteen?
Speaker 7: The Azure growth and the bogie is higher than what
Speaker 7: consensus numbers are, which is thirty one percent growth for
Speaker 7: eighty billion dollars rundread business. I think the bogie is
Speaker 7: thirty four percent because alphabet Google's cloud business grew thirty
Speaker 7: five percent last night. So anything less than that would
Speaker 7: be perceived as somewhat of a share shift.
Speaker 2: So translate this back he's talking to.
Speaker 3: They need to get thirty five percent growth in what part.
Speaker 2: Of my Azure cloud business?
Speaker 7: Azure Azure Okay, yes, and that's a much so think
Speaker 7: of Google Cloud as a forty five billion dollar rundred business.
Speaker 7: Azure Cloud is an eighty billion dollar rundred business, and
Speaker 7: Amazon Awls is one hundred and five billion dollar runder.
Speaker 5: The regulators have no idea what's going on. There's no
Speaker 5: way to put this genius.
Speaker 7: That's the big risk when it comes to alphabet So
Speaker 7: sounder pitch I last night did call out that risk
Speaker 7: off you know, the DOJA cases and what it could
Speaker 7: mean for the company, and that is the big risk.
Speaker 3: One hundred billion to eighty billion, I think you said
Speaker 3: forty billion, Yeah, added up, and all this stuff we're
Speaker 3: talking about runs on electricity, I believe. I mean, we're
Speaker 3: directly LinkedIn near at our world headquarters folks to Staten Island.
Speaker 3: When mister Bloomberg turns on the lights in the morning,
Speaker 3: Staten Island dims, I get it. Where's all the electrical
Speaker 3: generation for the one hundred and eighty two hundred and
Speaker 3: twenty billion dollars of business talking.
Speaker 7: About I mean the in fact, Google did mention last
Speaker 7: night they are investing in nuclear reactors or some of their.
Speaker 2: User referbed like three Mile Island.
Speaker 7: I mean, these are and they're doing it in partnership.
Speaker 7: So it's not all Google, but clearly that's part of
Speaker 7: the capex, the thirteen billion dollars in capex they invent.
Speaker 7: Some of it is going towards building new data centers
Speaker 7: and adding new and.
Speaker 3: They need water to cool, so they're going to go
Speaker 3: between John Tucker's house and the restaurant right at the ferry.
Speaker 3: I mean, is that where the is that where the
Speaker 3: plant's going?
Speaker 2: Yeah, right in my backyard.
Speaker 5: The S and P five hundred utilities index this year,
Speaker 5: that's up.
Speaker 2: Yeah, utility, it's amazing. Plus the dividend, and I feel
Speaker 2: we haven't covered it. Can Eric, can you make a note?
Speaker 3: We got to get a bunch of utility animals in
Speaker 3: here to talk about man deeps world.
Speaker 2: This is exciting. Did you expect this five years ago?
Speaker 7: Mandeep, We're talking about one gigawatt data center. I mean
Speaker 7: just think about it. Right now, we're at twenty megawatts,
Speaker 7: one gigawak data center. Yes, I did not expect this
Speaker 7: coming back quickly.
Speaker 2: So a gigawat, yeah, okay, that's a lot.
Speaker 3: One point two one gigawatts can power more than ten
Speaker 3: million light bulbs and they're all burntout in jud Tucker's basement.
Speaker 7: It can probably power the entire New York City if
Speaker 7: you think about it, you know.
Speaker 2: A gigaway.
Speaker 5: Yeah, it's like physics with Mandy coming out of Silicon
Speaker 5: down Gerarm.
Speaker 8: Okay, you get wet to give you an email coming
Speaker 8: in here. They're worried about it getting back. You're gonna
Speaker 8: be ready for Wimbledon. You're going to be ready for Wimbledon.
Speaker 8: We'll talk. We gets a free time your way.
Speaker 3: I want to talk to you about I had the
Speaker 3: honor of seeing vj Armatrov with Borg. It is peak
Speaker 3: at Forest Hills, and I really want to get time
Speaker 3: to talk to you about that man deep sing there
Speaker 3: in the middle earning season this.
Speaker 1: Here's the Bloomberg Surveillance Podcast. Listen live each weekday starting
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Speaker 1: Alexa playing Bloomberg eleven thirty.
Speaker 2: When I was in.
Speaker 3: Rome recently, this was really front in center, the international
Speaker 3: view of a America's fractured politics, whatever your belief. Lindsay
Speaker 3: Newman working with Ian Bremer over at G zero, over
Speaker 3: at Eurasia Group. We're thrilled she could.
Speaker 2: Join us right now, doctor Newman.
Speaker 3: The view from sixty thousand feet, What does the first
Speaker 3: G seven meeting look like, daresay russia'sttens G eight. What
Speaker 3: does the first G seven meeting look like for President
Speaker 3: Trump or President Harris?
Speaker 9: Well, as you know, John, we're just a few days
Speaker 9: af from his election, and it has been a turbulent,
Speaker 9: tumultuous one. We've had Donald Trump, former President Trump suggesting
Speaker 9: that should he win this election on Tuesday, which remains
Speaker 9: a dead heat in anyone's game, that he would immediately
Speaker 9: begin the process of bringing the parties together in the
Speaker 9: Ukraine Russia conflict and seeing if he could bring a
Speaker 9: resolution to it. He says, the US is on the
Speaker 9: brink of World War three. Those are the stakes as
Speaker 9: he sees them, So we would have to expect a
Speaker 9: lively G seven G eight.
Speaker 10: As you say, should it.
Speaker 9: Be Trump Harris, you know, as you know, the big
Speaker 9: threadline and I feel it too, is that it's a
Speaker 9: bit of an unknown. She has tried to associate herself
Speaker 9: with Biden administration's successes, perceive successes. She has tried to
Speaker 9: distance herself from those areas where it may have fallen short.
Speaker 9: Of course, Trump is always talking about Afghanistan, and Afghanistan
Speaker 9: is a key sticking point on US foreign policy. But
Speaker 9: there's a lot of unknown there on what a Harris
Speaker 9: presidency would mean on foreign policy, and we have to
Speaker 9: expect it would look a lot like what we've seen
Speaker 9: before from the Democrats. So those allies in the G
Speaker 9: seven would be the important partners for the US.
Speaker 5: Doctor Newman, are we going to know at nine or
Speaker 5: ten o'clock at night on November fifth who our president is?
Speaker 5: If not, how long do we have to wait?
Speaker 10: It's a great question.
Speaker 9: I mean nine o'clock at night for me sitting here
Speaker 9: in London, absolutely, not night o'clock at night for you
Speaker 9: sitting over there. I think the answer is still no.
Speaker 9: You know, this race is a toss up at the
Speaker 9: national level. Trump has now erased Harris's lead that she's
Speaker 9: held essentially since building her case in the race in
Speaker 9: when she entered in July. We know that each one
Speaker 9: of these swing states is also a toss up and
Speaker 9: have traded back and forth. So if anyone tells you
Speaker 9: they know where this race stands today, you know, either
Speaker 9: back away and close the door or run towards them perhaps.
Speaker 9: But what I would just say, there are a couple
Speaker 9: of signals we can be watching. There's the momentum, which
Speaker 9: I've already talked about. There's this anti incommency sentiment that
Speaker 9: has circled the world. Right, we've all been saying, oh,
Speaker 9: this is the year of elections. A half of the
Speaker 9: world's population, we'll be voting. Harris may very well get
Speaker 9: caught up in that, because voters may want change, they
Speaker 9: feeling their pocketbooks are lighter. And then the early voting
Speaker 9: signals that we're already seeing are interesting. Fifty three million
Speaker 9: have already voted. There is some indication that perhaps Democrats
Speaker 9: are ahead on that have had more votes casts, and
Speaker 9: interestingly enough, women may have voted more so already than
Speaker 9: Democrats feel that that gender gap is going to.
Speaker 10: Be critical for them. But I think the short answer
Speaker 10: out of my lung is no, we're not going to
Speaker 10: know at nine o'clock at night.
Speaker 3: For Trump's supporters and frankly Harris supporters as well, there
Speaker 3: seems to be a primal scream to find a Harris
Speaker 3: foreign policy that is distinctive and differenced or nuanced from
Speaker 3: a Biden foreign policy.
Speaker 2: Is it out there?
Speaker 3: Does it exist, this distinction of a new change in
Speaker 3: foreign policy.
Speaker 9: I think you're absolutely right that there is a desire
Speaker 9: for change in foreign policy. I think it is not
Speaker 9: out there yet. But one point that I always come
Speaker 9: back to is personnel. We are not going to have
Speaker 9: the same personnel around Harris.
Speaker 10: Should she win the presidency.
Speaker 2: She will read hire for Lincoln.
Speaker 9: Foreign policy is not going to I think it's very
Speaker 9: unlikely that shor we hire Blncoln. I think Burns is
Speaker 9: a likely familiar face that we'll see again.
Speaker 10: But it's not going to be Jake Sullivan. It's not
Speaker 10: going to be Anthony Blincoln.
Speaker 9: It will be a new cast of characters, some who
Speaker 9: have had ties to the say the Obama administration. But
Speaker 9: the personnel is personal, and I think it will shape
Speaker 9: form policy.
Speaker 5: So how about down ballot voting? What do we know
Speaker 5: about that these days? Because I mean, we need to
Speaker 5: be able to call Congress at some point next week.
Speaker 5: How is that looking?
Speaker 10: Yeah, I mean, look, it's also been very close.
Speaker 9: I think the expectation there is that we're going to
Speaker 9: see some split in the in the you know, in
Speaker 9: the two houses, and that is going to affect whoever
Speaker 9: holds you know, whoever holds the White House. And we
Speaker 9: know that, you know, last night Harris was talking at
Speaker 9: that very stunning event at the Ellipse, you know, brought
Speaker 9: seventy five thousand people out, got under Donald Trump's fingernails
Speaker 9: with all those people. But she was talking about national
Speaker 9: security and the way forward. But you know she's talking
Speaker 9: about immigration reform. How is she going to get immigration reform?
Speaker 9: You know, no president has been able to get say,
Speaker 9: massive immigration reform through the Houses because of these divisions
Speaker 9: that we see both within the Houses and across the houses.
Speaker 3: Does foreign policy matter inside the voting booth, sitting at
Speaker 3: your kitchen table writing in the ballot?
Speaker 2: Is there any.
Speaker 3: Evidence of foreign policy matters? Or it does all domestic
Speaker 3: at the end of the day.
Speaker 9: We've all seen, I mean, there's been a million articles
Speaker 9: that we've seen about how foreign policy never matters. How
Speaker 9: it does matter this time around. I promise you it
Speaker 9: matters this time around.
Speaker 10: You know, Donald.
Speaker 9: Trump this weekend, speaking at Madison Square Garden said he
Speaker 9: opened with this question, are you better off today than
Speaker 9: you were four years ago?
Speaker 10: That is what matters to voters the selection.
Speaker 9: You know the fact that he thinks that they might
Speaker 9: be on the brink of World War two, that's of interest.
Speaker 9: But we know the top issues here, the top issues
Speaker 9: for voters are the economy, inflation, immigration. If you call
Speaker 9: immigration form policy, then maybe you've got a slight asterisk there.
Speaker 9: But what matters to people is how they're feeling in
Speaker 9: their pocketbooks, in their teching accounts, when they look around
Speaker 9: their friends and family.
Speaker 5: Are we now at a new normal, lindsay is to
Speaker 5: the electorate? Is it split fifty to fifty just now?
Speaker 5: Going forward? I mean, it doesn't seem It seems like
Speaker 5: the lines are so drawn and so set that I'm
Speaker 5: not sure how that changes in you know, cycles going forward.
Speaker 10: Yeah, it's a great point, Paul.
Speaker 9: I mean, I've been writing a lot about what I
Speaker 9: was calling radicalization, which is just this idea that American
Speaker 9: voters are moving towards the polls and not towards the center.
Speaker 9: We know that Democrats and Republicans don't share facts. We
Speaker 9: know that they don't have a lot of love loss
Speaker 9: between them. We are at a hyperpolarized moment. I think
Speaker 9: it's a generational hyperpolarized moment. Generations get me long, And
Speaker 9: it's distinctly possible that this is just where we are
Speaker 9: for the next couple of cycles. Because we're not seeing
Speaker 9: you know, we're not seeing a retrenchment back towards the center.
Speaker 9: We're not seeing a big poll in either parties towards
Speaker 9: the middle. That's just not the trend line.
Speaker 3: I was talking to the Roman is one of my
Speaker 3: great editorials advisors. Roman and I were going back and
Speaker 3: forth on the David Brooks essay that was out a
Speaker 3: week and a half ago, ten days ago, on just
Speaker 3: what you're talking about, doctor Newman, which is a polarization,
Speaker 3: and yet, like Reagan and Ford, Ron Reagan to get
Speaker 3: elected move to the middle in the next six days.
Speaker 2: I mean, the President Trump's got.
Speaker 3: A method, let's be honest. Vice President Harris is or
Speaker 3: any tendency to move to the middle.
Speaker 9: I think what Vice President Harris's campaign has tried to
Speaker 9: do is to leave it open to interpretation that she
Speaker 9: wants you to see yourself in her candidacy. That's why
Speaker 9: we don't see her drilling down on policy, you know,
Speaker 9: despite the efforts to probe, despite the interest in understanding.
Speaker 9: As you asked me earlier, you know what really is
Speaker 9: the what is that they're there on foreign policy? And
Speaker 9: I think it's because we are going She's going to
Speaker 9: craft it as she goes Once if she if she
Speaker 9: wins this election. I don't expect us to see more
Speaker 9: of the filled in though on policy, either domestic or
Speaker 9: foreign policy in the days ahead.
Speaker 2: From her son, don't be a stranger.
Speaker 3: Bring the Bremmer guy along with the next time. Lindsay
Speaker 3: Newman with your raising group A gzero media from London
Speaker 3: this morning. Really informative there, whatever your politics.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 3: This is what surveillance is about, folks. We've codified this
Speaker 3: decades ago. I can't say enough about We move when
Speaker 3: the story moves.
Speaker 2: Joining us.
Speaker 3: In fourteen minutes, Woo Jin Hoe will join us. He
Speaker 3: is expert on super micro computer with Bloomberg Intelligence. Are
Speaker 3: thrilled he's freed up as schedule to speak to us. Paul,
Speaker 3: why don't you bring a guest in here? On the
Speaker 3: shadows of private credit.
Speaker 5: I tell you this is again. I've kind of been
Speaker 5: in this investment game for thirty five years. One of
Speaker 5: the most amazing developments to me, has been in addition
Speaker 5: to ETFs, this private credit business all grew up with
Speaker 5: private equity, but private credit has become just an extraordinary
Speaker 5: alternative investment opportunity for a lot of investors, particularly after
Speaker 5: the Great Financial Crisis when some of the banks were
Speaker 5: pulling back on their lending. And kind of what I
Speaker 5: know about this business I learned from our next guest,
Speaker 5: Randy Schumer, vice Chairman, Investor Solutions Group, Churchill Asset Management,
Speaker 5: most notably from the JP Morgan Chase corporate banking business
Speaker 5: and loan syndication business.
Speaker 6: That's a long time ago, Paul.
Speaker 5: That's where you learn credit, and that's where I learned
Speaker 5: my credit chops there at Chase Manhattan Bank, Randy. We
Speaker 5: got interest rates coming down, although they old curve is steepening,
Speaker 5: but interest rates generally coming down the Feds lowering rates.
Speaker 5: What does that mean for the private credit business?
Speaker 6: By the way, a shout out to James Crombie and
Speaker 6: your Credit Edge podcast. I'll be if you want sixty
Speaker 6: minutes of Me and private Credit to tune in tomorrow
Speaker 6: for that. So, yeah, rates are probably coming down spreads
Speaker 6: across this credit spectrum. As you guys have reported are tightening.
Speaker 6: The Bloomberg High Yield spread index is below three percent.
Speaker 6: I mean, that's a little bit nutty when you look
Speaker 6: at what you know, the potential risks over the next
Speaker 6: six months are. But really, capital markets are wide open,
Speaker 6: and in the midst of all this, private credit is
Speaker 6: actually according to JP Morrigan report that they put out
Speaker 6: a couple of days ago, credit spreads in private credit
Speaker 6: have actually increased by twenty five basis points. Now, let's
Speaker 6: think about that in the context of everything going on.
Speaker 6: Part of what's going on is that the broadly syndicated market,
Speaker 6: which we know has been more active this year than ever,
Speaker 6: has been able to affect the large cap market, the
Speaker 6: large mintal market deals. But in the traditional middle market,
Speaker 6: in the in the direct lending market that we churchills
Speaker 6: in spreads have actually gone up a little bit. Why
Speaker 6: is that deal flow is starting to come back? I
Speaker 6: always like bringing stats into you guys. Every month, Global
Speaker 6: m and A up quarter over quarter by nine percent
Speaker 6: according to S and P year over year twenty three percent.
Speaker 6: So as deal flow increases, people can be more picky,
Speaker 6: so they like us say, he you know, I'd rather
Speaker 6: take something a little more spread, A little more protections
Speaker 6: for our investors, So spreads are actually coming up. The
Speaker 6: other thing that's going on is the ill liquidity premium
Speaker 6: between liquid markets. The Brothers indicate loan market private credit
Speaker 6: is actually widened to a five month high, so very
Speaker 6: attractive for investors right now, right where.
Speaker 3: I want to go to. I want to explain, Randy,
Speaker 3: you're the best to do this. Everybody's concerned, even people
Speaker 3: supporting private equity private credit. We intuitively get in private equity,
Speaker 3: you buy something, it's locked up for seven years whatever,
Speaker 3: you got to wait to get out. Then when you
Speaker 3: get out, you can't get out. It's intuitive inequity, it's
Speaker 3: not in your world. Now you just discovered that what
Speaker 3: is the lock up in private credit that needs to
Speaker 3: be analyzed, studied, calmed, or concerned about.
Speaker 6: Yeah, so you're pointing to the issue of liquidity, right,
Speaker 6: and illiquidity which has tended to be viewed as a
Speaker 6: negative in markets that are very correlated, and we saw
Speaker 6: that in spades, you know twenty two and a little
Speaker 6: bit in twenty three. Tends to be a negative for
Speaker 6: investors because they don't they want something that's an alternative
Speaker 6: to the correlated assets of public equities and fixed income,
Speaker 6: and so they seek alternatives, including private capital, to get
Speaker 6: a little bit more calm during periods of stress and turmoil.
Speaker 6: So what's happening for private credit investors is that the
Speaker 6: valuations associated with our loans tend to be a lot
Speaker 6: more stable during periods of volatility. And so what they're
Speaker 6: trading for in terms of lack of being able to
Speaker 6: trade on demand is the ability that during a crisis
Speaker 6: they don't see the kinds of moves and prices. Oh yeah,
Speaker 6: all of our loans are valued by third party agencies,
Speaker 6: you know, and and so it's not just us value,
Speaker 6: but they're they're valued by by others as well as
Speaker 6: the fundamentals of these companies. It's not they're not traded
Speaker 6: the way that you know, the broadly syndicated loans are.
Speaker 6: But the fundamental difference I think now is that with
Speaker 6: the m and a market opening up, these loans are
Speaker 6: going to start to trade more often in the sense
Speaker 6: that deals are going to start to get done and
Speaker 6: refinanced private equity, which has been stalled to your point
Speaker 6: because capital has been locked in with these deals where
Speaker 6: LPs are stuck because they haven't seen realizations. Now those
Speaker 6: realizations are going to start to come and I think
Speaker 6: we're going to see more of that next year.
Speaker 5: You guys get a gajillion pitch books coming through your
Speaker 5: door every year. How do you screen them?
Speaker 2: What?
Speaker 5: What do you like these days?
Speaker 6: Well, we get about a thousand deals a year coming
Speaker 6: from our private equity friends. Where As I've told you before,
Speaker 6: we're an investor in their funds. So these are kind
Speaker 6: of pre screen transactions. We could probably do all of
Speaker 6: them and be fine, but some of them fit better
Speaker 6: into our credit book, right So some are more equity
Speaker 6: like high growth, and in the credit world, as you know,
Speaker 6: you're getting paid principal and interest, so you just want
Speaker 6: to be you know, it's not being first or second,
Speaker 6: it's finishing the race. What we're looking for is kind
Speaker 6: of what we've been looking for, which is defensive industries,
Speaker 6: sectors such as you mentioned, accounting firms, accounting firms, regional firms.
Speaker 6: In this business we're going around right now very steady atty.
Speaker 6: Doesn't matter what the tax rates or taraffs are, you
Speaker 6: still need five fall and life al So I think
Speaker 6: that business services are really good right right now in
Speaker 6: terms of what we're seeing.
Speaker 2: With Churchill asset management or industry. We're with us right now.
Speaker 3: I'm looking to Google up ten dollars to a one
Speaker 3: seventy nine and off the trading range, going back to Midsummer,
Speaker 3: I'm going to call it that was where Sweeney took three.
Speaker 2: Fridays in a row off back then.
Speaker 3: There are three point eight standard deviations. I think we
Speaker 3: can say surge is appropriate.
Speaker 5: Yes, surge is appropriate. Rannie, talk to us about the
Speaker 5: private equity world. What are you seeing from your private
Speaker 5: equity clients in terms of deal flow. When we hear
Speaker 5: Jamie Diamond and Brian moynihanda the big you know Wall
Speaker 5: Street banks thing, you know, activities picking up, they feel
Speaker 5: more bullish about activity.
Speaker 2: Are you seeing that?
Speaker 4: Yeah?
Speaker 6: So our platform, so we do private credit. We have
Speaker 6: a junior capital co invest and fund to fund business.
Speaker 6: We also have a secondary's business which is actually one
Speaker 6: of our fastest growing And going to the point that
Speaker 6: Tom mentioned about liquidity when these investors and some of
Speaker 6: the gps are stuck, the secondary's market has been one
Speaker 6: of the fastest growing in the private equity space because
Speaker 6: realizations are slow and so if you're an investor in
Speaker 6: a fund or if you're a GP with a sponsor,
Speaker 6: you're kind of looking for ways out, and you can
Speaker 6: create liquidity through the investments that you have and the
Speaker 6: portfolios that you created, because the enterprise value that's there
Speaker 6: is being tapped by firms like Churchill to be able
Speaker 6: to help them access liquidity when otherwise they couldn't. So
Speaker 6: the sophistication and technology in private equity now has changed
Speaker 6: so much since the old days when you basically had
Speaker 6: a portfolio company. If it's stuck and you can't sell it,
Speaker 6: that's it. But today you can actually transfer value into,
Speaker 6: for example, another fund that you control. So these co
Speaker 6: invest vehicles are read.
Speaker 3: Give us a comparison yield. I think it's something I'm
Speaker 3: ignorant about. What's a blended yield of a private credit
Speaker 3: Churchill transaction versus high yield versus four point x percent
Speaker 3: ten years?
Speaker 6: Yeah, so I mentioned I mentioned the illiquidity premium. So
Speaker 6: you're about two hundred basis points differential in private credit
Speaker 6: relative to liquid loans number one, So you're probably another
Speaker 6: fifty one hundred basis points above the high yield bond market. Okay,
Speaker 6: because think about where your high Bloomberg spreads are, right
Speaker 6: now and then if you look at private equity, depending
Speaker 6: on you know, and we're sort of a top tier
Speaker 6: investor focusing on top tier firms, you're looking at twenty
Speaker 6: plus percent returns for the best private equity sponsor. So
Speaker 6: you have the ability as an investor to choose with
Speaker 6: our platform, you know, stream of income that's safe because
Speaker 6: you're top of the capital structure, secured by all the
Speaker 6: assets senior credit. But then you can migrate up the
Speaker 6: risk spectrum to get more yield. And what investors are
Speaker 6: looking now for is how do you adapt in the
Speaker 6: current climate. How do you adapt when things are uncertain?
Speaker 6: How do you adapt when markets can be volatile? And
Speaker 6: there's a safe harbor that's been created and that's why
Speaker 6: you're seeing the growth that you're doing real quick.
Speaker 5: One of things regulations I see the FTC and the
Speaker 5: DJ blocking a lot of the big deals. Are you
Speaker 5: seeing that as a headwind?
Speaker 6: Well, again, you know, private credit tends to be a
Speaker 6: little bit of a different environment because these companies are
Speaker 6: privately held, they're not raided, they're not traded, and private
Speaker 6: acty sponsors have been looking at industries that they like
Speaker 6: for like a decade that are smaller these and medium
Speaker 6: sized companies. These are companies are small. Yeah, exactly, that
Speaker 6: makes sense.
Speaker 2: You're doing the James Cromby.
Speaker 6: Yeah Podcast tomorrow. Check it out.
Speaker 2: Check it out, folks. This is Cromby is like the
Speaker 2: real deal. Credit Edge.
Speaker 3: I'm taking notes from from Credit Edge. I'm taking notes
Speaker 3: from from James Crimby.
Speaker 2: That's really special for Global Wall Street.
Speaker 3: Randa Schummer, Churchill, Will James Crabby look for that of
Speaker 3: course at Bloomberg Podcast.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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